Hiring lover to do job proves costly

The Dominion Post 31 October 2009

Over recent months there have been a few interesting cases where employers have obtained remedies against their former workers. The case the Auckland Regional Council took against Ketuni Tilialo is rather amazing for the sheer audacity of what went on.

Mr Tilialo worked for the Auckland Regional Council as the programme manager at one of the council's departments. He was in a reasonably senior position and had authority to authorise expenditure on the council's behalf for up to $50,000 on any single transaction.

Mr Tilialo's manager, Ms Bell, decided that someone was needed to edit and merge two documents on customer service, totalling 22 pages, into a single document. Ms Bell agreed in principle that a third party be engaged to carry out the task. She thought it would cost around $500, though she did not say so at the time.

At the same time, Mr Tilialo was having an extra-marital relationship with Ms X. Mr Tilialo engaged Ms X to do the work in question.

He did not disclose to Ms Bell the nature of his relationship with Ms X. He did not disclose that he and Ms X were planning a trip to the United States together, or that they were intending to pay half each of the cost.

Ms Bell's evidence was that she told Mr Tilialo only to engage contractors using a letter of engagement in a written contract. Mr Tilialo did not do this when he engaged Ms X.

The only documentation that existed were two invoices that Ms X presented to Mr Tilialo.

These invoices were both in the amount of $4500 plus GST. The first invoice was in the name of "Matukutureia Charitable Trust" of which Ms X was a trustee, although her name was not on the invoice.

According to the trust deed amongst other things the trust promotes and supports initiatives to assist the economic advancement of Maori. It was not involved in providing regulatory services or customer service advice.

The second invoice was in the name of Ms X's company and contained her own name. Mr Tilialo processed both invoices in the name of "Matukutureia Trust" and did not record Ms X's name for contact purposes. The invoices did not comply with the council's guidelines; however Mr Tilialo did not question the invoices. Payment was duly made to the nominated account.

The council later obtained from Ms X copies of the trust's bank statements for the account number nominated in the invoices at the relevant time. The statements show deposits corresponding with the invoices, and corresponding withdrawals a few days after each deposit. The council also obtained copies of Ms X's credit card statements which show deposits at the relevant times on to her card.

In early 2008 the council received a report from a third party that Ms X had told the third party of a recent trip to New York with her "boyfriend", allegedly paid for by the council the boyfriend worked for. The council began an investigation. Mr Tilialo resigned in March 2008, but during his notice period the council discovered the invoices, initiated a disciplinary process and dismissed Mr Tilialo.

The council applied to the Employment Relations Authority seeking recompense for the invoices, damages associated with the costs and inconvenience of the investigation process and penalties against Mr Tilialo.

The authority found that Mr Tilialo had no reasonable grounds for authorising payments as large as were made, Ms X's suitability for the work was questionable, and their personal relationship constituted a material conflict of interest which Mr Tilialo did not disclose to the council.

The authority concluded Mr Tilialo breached the implied duty to serve his employer in good faith and fidelity, breached his obligation of trust and confidence, and breached the terms of his employment agreement. The authority ordered Mr Tilialo to pay the council the sum of $9000 in recompense for the invoices.

Further, the authority awarded the council special damages totalling $27,816.90. This represented the direct costs the council incurred in investigating the incident, including legal costs and a forensic investigator.

The authority also awarded $3000 general damages for the loss of executive time, general inconvenience and interruption of the council's business as a result of Mr Tilialo's breaches. Finally, the authority awarded a penalty of $2000 to be paid to the council for the purpose of punishment and deterrence. In total Mr Tilialo's behaviour in engaging his lover as a contractor to the council cost him $41,816.90.

Employment relationships are based on mutual trust and confidence. For the relationship to be successful, the parties must have trust in each other to look after the other's interests as well as their own.

However, if either party abuses that trust there are remedies. Here, the employer had the ability to recover its losses and got awards from the Employment Relations Authority to do so, along with additional costs incurred.

In this case, it was a public body, the Auckland Regional Council, that had been taken for a ride. No doubt, the remedies sought provided protection for the ratepayers of Auckland for what had happened. The fact that the council took such a case will be of comfort to ratepayers, and a warning to those who see publicly funded organisations as a soft touch.

Peter Cullen is a partner at Cullen - the Employment Law Firm

Email: peter@cullenlaw.co.nz